Goldman Sachs, a key American financial player in a report released today has stated that the private equity funding in Indian startups has declined. It has seen a dip of 25% YoY(year-on-year), falling from $2.5 billion in 2015 to $1.9 billion in 2016.
The report further states that even though the total number of deals have increased by 52 per cent year-on-year, but the average deal size has declined. It has now almost halved, amounting to only a meager $4.3 million. This corroborates the recent slowdown in the growth of Indian startups.
According to the report, Indian e-commerce has received healthy capital inflows of over $8.4 billion in 2015 compared to $6 billion in 2014. But, it also reports that the capital flows into startups also started ebbing away after peaking to $4 billion by the end of 2015.
The slowdown in private equity cash-flows has also impacted Series B and C rounds of funding(i.e the growth and expansion stage) for Indian startups. The number of deals across Series A, B and C rounds dwindled at 73 this year as compared to 94 in 2015.
It has thus forced companies to take drastic measures to prevent them from shutting shop. They have resorted to lowering cash burn rates and restructure operations to focus on profitability.
The new players in the startup industry are finding it hard to expand and raise capital. While, the companies which have been successful in scaling their operations are facing no problem in raising more capital. And these companies are also seen acquiring weaker companies to scale their own operations in some cases.
Indian E-Commerce Scenario
The e-commerce market in the Asia-Pacific region has seen unprecedented growth since 2014. Globally the e-commerce market is expected to grow by 2o% primarily driven by China and India in the next three years.
By 2020, e-commerce in India is expected to account for 3 per cent of total retail. Further, orders per million are expected to more than double from five million in 2013 to 12 million by the end of 2016. The e-commerce companies are now receding away from discounts and shifting their focus towards profitability due to changes in FDI guidelines.
Flipkart and Amazon are currently sparring for the top e-commerce spot in India. On one side, Jeff Bezos has recently committed to invest another $3 billion into the Indian arm of operations. While on the other hand, Flipkart is taking serious devaluation blows, trying to find its footing to fight the US e-commerce player.
The company has very recently structured its returns policy and started charging sellers a shipping fee and a collection fee for every products returned online. It has also forayed into courier services with its logistics arm Ekart called — Ekart Couriers. And has also reduced product return time from thirty days to just ten days.
The Indian e-commerce sector has seen a huge boom with the arrival of PayTM, Snapdeal and other in the market. Currently, Flipkart and Amazon are also tied in a judicial matter with the government of Gujarat. It is in regard with the 5 per cent entry tax that has been levied on them.
So, the outcome of the report seems to be that — with the venture market rationalizing, the Indian startup ecosystem is now entering a phase of consolidation.